De-Crypto-ing Signals in Initial Coin Offerings: Evidence of Rational Token Retention
Tetiana Davydiuk, Deeksha Gupta, Samuel Rosen
Management Science · 2023 · Volume 69 · Issue 11
Abstract
Using the market for initial coin offerings (ICOs) as a laboratory, we provide evidence that entrepreneurs use retention to alleviate information asymmetry. The underlying technology and the absence of regulation make the ICO market well suited to study this question empirically. Using a hand-collected data set, we show that ICO issuers that retain a larger fraction of their tokens are more successful in their funding efforts and are more likely to develop a working product. Moreover, we find that retention is a stronger signal when markets are crowded, and investors do not have as much time to conduct due diligence. This paper was accepted by Will Cong, Special Section of Management Science : Blockchains and Crypto Economics. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.4631 .
Keywords
asymmetric information, signaling, entrepreneurial financing, ICOs
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